Capital and inventory investments under quantity constraints: A microfounded Metzlerian model

Shogo Ogawa

MPRA Paper from University Library of Munich, Germany

Abstract: Although modern analyses of inventory dynamics identify the implicit roles of inventory holding, they do not entirely address its primary role. This study analyzes the correlation between the current quantity constraints and choices in intertemporal optimizations by modeling inventory dynamics. The economy's quantity constraints are reflected in a representative firm's optimization of its current employment and investment based on the perceived sales constraints. Using analytical and numerical methods, the results show that the Metzlerian cycle of inventory and sales expectations survives under the canonical intertemporal optimization framework, as the stable inventory-to-sales ratio is reproduced. Additionally, this Metzlerian model illustrates the qualitative aspects of inventory dynamics in the business cycle. However, the quantitative aspects are not reproduced through the optimization framework because the firm's control is based on a stationary growth path, thereby weakening the effects of sales expectation dynamics.

Keywords: inventory dynamics; inventory holding; quantity constraints; Metzlerian dynamics (search for similar items in EconPapers)
JEL-codes: D91 E12 E32 O41 (search for similar items in EconPapers)
Date: 2022-01-30
New Economics Papers: this item is included in nep-mac
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